Abstract A general mathematical model is developed to assist in planning the transfer of wealth to heirs. In most cases, the present value after federal taxes is maximized by some combination of estate and gift transfer. The existence of an optimal combination is a consequence of the progressive nature of tax rates, not the particular rates now legislated. The method of equated rates is developed, using calculus, to solve the problem of maximizing the present value of wealth received by the heirs. The method can be applied manually for simpler cases and provides a theoretical basis for computer solutions involving unknown time of death, growth and other complications. The model is general enough to be used to analyze the impact of proposed changes in estate and gift tax laws.
Seagle et al. (Sat,) studied this question.
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